MGP
Ingredients, Inc. (NASDAQ: MGPI) $81.68: “MGP has Ingredients for Shareholder
Value”
By:
Paul J. Cox – AIM student Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• MGP Ingredients, Inc. (NYSE:MGPI) Operates in two main segments,
Distillery Products, consisting of food grade alcohol, distillers feed and fuel
grade alcohol and Ingredient Solutions consisting of producing and distributing
wheat starches and wheat proteins.
• 2018 marked the fourth
year of management’s implementation of it’s strategic plan reporting financial
results consistent of the plan which included increasing demand for beverage
alcohol products and growing the Ingredient Solutions segment.
• For three consecutive
years MGPI has added more incremental new customers than the previous year as a
result of initiatives to increase sales coverage and refining product offerings
to become more popular.
• CFO and VP – Finance
Thomas K. Pigott recently increased his position in the company in early
January by nearly 5,000 shares.
•MGP’s Balance sheet
remained strong in FY 2018 allowing the company to continue to grow as well as
return funds to shareholders, including strong access to capital of $139 million under the company’s credit line
as well as $5 million cash on the balance sheet. Ultimately, this allowed the company to increase
the quarterly dividend payments in response to strong financial performance and
strong confidence in management’s ability to generate strong free cash flow.
Key
points:
Full year net sales grew 7.9% over the past year with
strong demand for the premium beverage alcohol growing 5.9% since 2017. Whisky is the mainstay of the business which
saw brown goods increase 11% in net sales, which management attributes to
strong demand and solid pricing.
While the brown goods
category saw strong growth, the white goods and industrial alcohol market as a
whole experienced significant pricing pressure, decreasing margins by 10 basis
points in 2018, as indicated by CEO Augustus Griffin in the 2018 Q4 earnings
call.
Management has shown a
commitment to investing in the inventory of aged whisky to strengthen their
market position, invest in building their brand and attract and retain
customers. Consumer demand was higher than anticipated in Q4 which drove
customers to attempt to fill inventory gaps which boosted Q4 sales.
MGPI has expanded its
geographic footprint while simultaneously expanding its brand portfolio,
introducing its first proprietary rye, reintroducing its award winning reserve
series and launching a new blended bourbon whisky inspired by the American
railroad, all receiving high accolades increasing consumer visibility and brand
awareness. During 2018, management has
completed brand expansion into Arizona, Illinois, Colorado, and announced
expansion into Texas. MGPI also intends
to leverage performance by following consumer trends of high performance and quality
ingredients, including plant based proteins, high fiber and protein, non-GMO
products.
MGP’s board of directors
authorized and announced a $25 million three-year share repurchase program in
addition to increasing quarterly dividends per share.
What
has the stock done lately?
MGPI shares dropped
significantly during December’s market corrections dropping from close to
$70/share to around $54/share during mid-December. Since then, the stock has shot back up to
nearly $82/share as of March 4, 2019. The
52 week range is $53.66 – $100.00.
Past
Year Performance:
MGPI was added to the AIM small cap
portfolio with a price of ~$79 ($78.25 on pitch date) indicating an increase of
~2.53%. From March 5, 2018 – March 5,
2019, MGPI has increased by 4.48%.
Source:
FactSet
My
Takeaway
MGPI’s emersion into new
geographical markets in Illinois, Arizona, Colorado and Texas could prove to be
critical to increasing shareholder’s value.
Management’s share repurchase plan as well as MGP executives
repurchasing shares including CEO Augustus Griffin repurchasing nearly 10,000
shares on February 27, 2019 could be a leading indicator management indicates
the share price will increase. Revenue
growth will heavily depend on the success of the Whisky segment penetrating new
geographical markets and the ability of management to successfully implement
investment in the brand to gain new consumers.
If management is able to continue to successfully implement these
strategic initiatives, I believe MGPI is positioned to deliver strong growth in
2019 and beyond.
Source:
FactSet
